Monday, April 29, 2013

Analysis of Alcatel-Lucent

A French-American telecom company

Company: Alcatel-Lucent

Business: Telecommunication with supply of hardware and services. They have both wireless as well as optics networks laid out.

Active: All over the world. The company was created by merging the French Alcatel with the American Lucent. which gave them a strong European as well as American base.

P/E: -1.7

Maybe I should in this specific case say why I started to look at Alcatel-Lucent. The only reason for that was because one of the investors that I followed Mr. John Burbank of Passport Capital LLC had bought Alcatel-Lucent and I wanted to figure out what made him buy it. From my analysis I was not able to figure it out and the next quarter report then Mr. Burbank had sold it off again. I then started looking a bit deeper into it and found out that Mr. Burbank is sometimes calling some kind of "oracle" that are telling Mr. Burbank which investment to make based on the Fibonacci. This would also maybe explain why the Passport fond every now and then tossed out letters of the alphabet and added other letters. Either way... Fibonacci serves a purpose in science and I see no correlation for using it within finance. Things don´t become scientific just because you steal a scientific formula and try to fit it to your data... So I tossed out Mr. Burbank and will never look on what Passport Capital LLC is doing again.

The running P/E of this company is negative due to the losses they are making which they have almost consistently been having for the last 5 years. Ok, I have to admit that in 2011 they had a small positive year... The price to book is acceptable but it is not due to a high book value but purely due to that the market tells that the value of the company is very close to its book value and fairly so probably. Pretty sad to see that for each euro they are selling they are having -10% earnings. With the book to debt ratio of 0.10 they are looking pretty close to a bank with fractional reserve banking...but a telecom operator has no such thing. Very disturbing high debt. The company has for the last 5 years had a -3.2% of growth and are of course not paying any dividends. As an extra comment here. When I went back in time it was very frequent that Alcatel-Lucent was pushing in an extreme loss in the final quarter before then things had looked pretty acceptable because they only added up the earnings so first quarter was always good profit. Ugly bookkeeping!

Conclusion: Don´t buy it. What scares me extra with this especially due to their bookkeeping is that one would have to wait a full year before being able to see if this company has made a turn-around. One or two quarters would not be enough. So please avoid this one.

No comments: